In 2022, Wright’s, Inc., signs a contract to design and deliver 100 laptop computers customized to perform certain functions required by a customer. Wright’s will be paid $300 per computer but must deliver all 100 laptops to fulfill the contract. At the end of 2022, Wright’s has completed and delivered 75 laptops and recognizes $22,500 (75 3 $300) in revenues in its audited financial statements.

a. Assuming Wright’s is an accrual basis taxpayer, how much gross income must it recognize in its 2022 taxable income?

b. (How) would your answer change if the contract allowed the customer to cancel the contract prior to delivery of the 100 computers but required them to pay for any computers completed prior to cancellation?